Why did they close my PayPal account?

When PayPal “permanently” limits Umang Nahata’s account, he appeals the decision. When his wife’s account is also frozen, he turns to me for help. Can I get their accounts unfrozen?

Question: PayPal has closed my account, and I need your help getting it restored. This summer, I added funds to my PayPal account through Paypal My Cash and withdrew those funds to my bank account. I have the receipts.

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In August, I received an email from PayPal that said my account was being “limited” because of activity that appeared to be “high risk.” I called PayPal and explained the flagged transactions, and my account was restored.

But a day later, PayPal deactivated my account again. I’ve tried to appeal to PayPal in writing, but have had no success. I escalated my appeal, but was told my account had been “limited permanently.” Now my wife’s account has been permanently limited, too. Can you help? — Umang Nahata, Cleveland

Answer: Well, this one’s a real mystery.

PayPal’s voluminous user agreement forbids a lot of things, including posting content that is obscene or offensive, attempting to use multiple currencies for speculative trading, and altering, reproducing, adapting, distributing, displaying, publishing, or reverse engineering its software.

You could have done any number of things that PayPal doesn’t like, and unless it explicitly tells you how you’ve sinned, you might never know.

When I get a case like this, I assume everyone has the best of intentions and this is probably just a simple misunderstanding. Maybe you made a few innocent transactions on your account that flagged PayPal’s fraud-detection system, and when your account was frozen you tried to do the same thing with your wife’s account, with the same results.

I also assumed that the company — in this case, PayPal — just wasn’t clear about what you had done that apparently violated its terms, and would be eager to set the record straight.

I’m afraid I made too many assumptions with your closed accounts, but I’m not entirely sure which assumptions were wrong.

I asked PayPal if it could circle back with you and let you know how to make things right. What happened next is a case study in how not to do public relations.

“Unfortunately, we cannot comment on the specifics of any user accounts due to PayPal’s privacy policy,” a PayPal spokeswoman told me. “However, we can confirm that we are looking into the matter.”

I’m not going to name the spokeswoman. She’s probably just doing what she’s told, anyway.

“That said, would you be available for a call next week to discuss PayPal’s stance on customer service? PayPal’s president, David Marcus, recently wrote a blog post on the company’s ‘customer first’ approach and I believe it would be a topic of interest to you,” she asked me in a follow-up message.

Here’s a link to the post about the PayPal way.

Apparently, the “PayPal way” doesn’t include working with consumer advocates. When I suggested that rather than speak with an executive it might be prudent to wait until this case was resolved, I received a frosty response.

“Due to PayPal’s privacy policy we cannot under any circumstances discuss the specifics of any one case with anyone who is not the account user in question. Would you like to speak with PayPal’s Senior Director of Global Initiatives to answer any questions?” the spokeswoman said.

No, not really.

I wanted PayPal to answer one simple question: Why is the account frozen? Even if it doesn’t tell me why “for privacy reasons,” then at least you’d know what you did to deserve being banished by PayPal.

During the next several months, I stayed in contact with you, asking if PayPal had responded to you with a more complete explanation. PayPal remained silent, according to you. I contacted PayPal again to see if it had anything to add to this case. It had nothing to add.

So, no resolution on this one. Except maybe you should be careful of what you do when you’re on PayPal. You may be breaking a rule without even knowing it. And if you do, PayPal may not tell you anything. They’ll just freeze your account with no further explanation.

I’m not sure if I like the PayPal way.

Do you like the "PayPal way"?

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57 thoughts on “Why did they close my PayPal account?

  1. It’s pretty clear to me what behavior PayPal doesn’t like: using its service to rack up free credit card rewards, which is what it seems Umang was trying to do by buying MyCash cards in store and then withdrawing the money to his bank account. I don’t have any problem with this activity, but it’s not fair to raise a stink when one’s quasi-legitimate usage gets one’s account closed down.

    1. “using its service to rack up free credit card rewards”

      that is the only logical explanation. the point of “mycash” is to have the money in your account faster then you would with a bank transfer. but when the OP just did a bank transfer anyway, to get the money back it looks like

      A. using its service to rack up free credit card rewards

      OR- worse—money laundering though paypal cards

      the OP tried to pull a fast one on paypal- they deserve no help or sympathy.

      (i love paypal. i use it for ebay all the time.- but i only use it in the ways it was designed to be used.)

      1. Well, it does sound like he was trying to game the system somewhow.

        BTW, I tolerate PayPal, but by no means do I love it. I get pretty tired of their constant pestering for my bank account info. I got their credit card as a means to get “verified”. It seemed to be the lesser of two evils.

        But there is no way I would EVER give Paypal my bank accoount info, considering that, as you read this, there are probably a few thousand hackers trying to break into Paypal. If one were to succeed, they could rack up some serious charges on my credit card, but that is infinitely preferable to them draining my bank accounts.

  2. I’ve never heard of a Mycash card, but I definitely see how it could be used for sketchy activities. I’m wondering how many times he loaded his Mycash card.

    My guess though is that he was cash advancing, i.e. getting cash from his credit card. Credit card companies frown on that because they lose out on some very lucrative fees. Your credit card agreement explicitly forbids any activity that could be considered cash advancing, except through them.

  3. Maybe I am wrong, but I think banks would not discuss individual accounts with consumer advocates either. (Probaly doctors would not discuss medical info, etc.)
    Nevertheless there is no excuse for Pay Pal not to give some info about the account closing to the costumer. PayPal famous about this.

    This “I added funds then wthdrew to my bank account” seems some point chasing/cash advancing action.

    Chris, Happy Thanksgiving!

    1. Happy Thanksgiving! Yep, I have absolutely no problem with a company refusing to discuss a case with me. As I said, I do have a problem with them not answering a legitimate question from a customer. That’s where PayPal went wrong, in my opinion.

  4. Chris … Something stinks here and it’s not the turkey in the oven. I’d never heard of paypal cans until this article so I looked it up. The program is basically setup for those without access to credit to put cash into their paypal account with a high fee. What he did makes absolutely no sense. Each paypal cash card has a $4 activation fee associated with it. Churning, like he did, costs a lot of money for no gain. I can understand why these series of transactions would set off all sorts of alarms.
    They maybe innocent but his own explanation even makes the transactions sound nefarious.

      1. I think Paypal operates this way deliberately to try to avoid giving information about what specifically triggered their fraud detection. Sure it’s not customer friendly, but in some sense they realize that the customer is not “aways right” and are happy to fire customers that behave inappropriately. They feel they don’t owe these former customers an explanation, because they aren’t interested in dealing with people like this. (The problem of course is in the cases where the fraud detection goes wrong, but they seem happy with a little collatoral damage to protect them overall.)

  5. One of the first things that today’s IT people learn in life is to never under any circumstances have anything to do with PayPal. Even Ticketmaster and Allegiant Air are models of rectitude by comparison.

    The fundamental problem is that PayPal is performing the online functions of a bank without actually being a bank, so it cannot take advantage of that industry’s centuries of experience in handling money and dealing with the multiple human problems that can arise.

    Most of the PayPal’s troubles revolve around accounts used by sellers, which gather money from online transactions before being transferred to a real bank. PayPal’s single response to any sort of problem is to “freeze” the account involved, preventing withdrawals or deposits, and then go into radio silence while your business dies as a result. There is no accountability and no appeal process; your money can be tied up for months, or simply vanish forever. Chris, there was nothing unusual about your treatment in this case. It’s just how PayPal operates.

    1. “The fundamental problem is that PayPal is performing the online functions of a bank without actually being a bank, so it cannot take advantage of that industry’s centuries of experience in handling money and dealing with the multiple human problems that can arise.”

      It’s worse than that. PayPal has lobbied hard to keep from falling under the banking regulations. If they had to follow the same rules and regulations as a bank, they would not be allowed to get away with some of the crap they do. They would be accountable for their actions. As long as they can stay out from under the regulations, they are not accountable to anyone.

  6. I’m obviously missing something here. According to you, Chris, you were in touch with folks at PayPal who might have been able to explain the situation but, “cannot under any circumstances discuss the specifics of any one case with anyone who is not the account user in question.”

    Why didn’t you, then, just turn Mr. Nahata over to these folks?

    1. I did. I tried to facilitate a dialog between the two for many months. As I mentioned before, I didn’t care if they shared the specific findings with me. I just wanted to help the customer get an answer from PayPal. I thought he deserved one.

      1. Seems like he would on the surface but he probably is not allowed to get one per banking laws. I give thanks today for an article that is beyond the typical travel stuff. Now walk away from the computer.

  7. Only Mr. Nahata knows where he was sending money or spending it. I’m going to go out on a limb and guess that a few were foreign transactions. Due to scams, anything going in and out of a “high risk” country will be flagged.

    ETA: Ok, Paypal My Cash is not really Paypal. PMC is buying a card at a store, adding the funds to the account, so someone without a credit card could use Paypal. Sounds simple enough.

    Sounds also like the OP was slamming money through that system in a way that as suspicious. I lost all sympathy for him after ten minutes of research.

    1. Raven, i think you’ve explained this… so the OP was basically buying “gift cards”, then depositing the “cash” to his pay pal account and transferring to his bank account?
      i’m totally lost here, as i have only used paypal for ebay transactions or to send cash to an individual.

  8. Also: I buy a lot of stuff using paypal, especially when I import games and manga from Japan. Never had a problem and when one seller screwed me, Paypal refunded my money instantly.

    Can’t complain about them…but then, I’m not engaging in sketchy activity that on the surface looks like point-racking and worst looks like money laundering….

    And now, it’s time for The Super Bowl of Cooking.
    Happy Thanksgiving!!!

  9. I know nothing of the specifics of this case but based on my previous interactions with PayPal I think they are completely anti-customer in every way possible. They have a semi-monopoly and use that to brutally treat people for everything from resetting a password to usurus charges. I wish someone would set up a decent competitor. I guarantee a new competitor that treated their customers well would eat their lunch.

  10. My husband works for a financial institution. I read this story to him. First thing he said: “AML”. I asked him to explain. AML = Anti-Money Laundering, which is shorthand for some federal regulations regarding financial transactions. The OP’s situation looks very suspicious and PayPal was obligated to shut down the account, with no explanation. He says that the lack of explanation screams out to him that AML is involved.

    Although PayPal is not a bank, this set of rules/regulations/whatever applies to banks, insurance companies, gift cards, etc. (Mr. Jeanne_in_NE hasn’t had his coffee yet.)

    @Christopher Elliott, walk away from this. If the OP had money frozen in that account and not returned, it indicates criminal or anti-governmental behavior (i.e. funneling money to sanctioned countries or groups). In that case, the OP needs a lawyer, not a consumer advocate. If no money was frozen, then the OP should walk very, very quietly away.

      1. I love that you enjoy your job so much that you’re replying to us over your Thanksgiving morning coffee. That’s a serious, not sarcastic, comment. Now put your phone/tablet down and go play with your kids and hug your wife and leave work alone for the rest of the day. We’ll be here tomorrow too. 🙂

    1. But the accounts weren’t frozen. I’d totally agree with you if the accounts in question were frozen, but the story explicitly states that the accounts were limited.

      To me, that means more that they’ve blocked him from doing what he was doing.. Not blocked access to the entire account.

      Could just be semantics, but..

      1. My husband says he doesn’t know what “limited” means in a PayPal context (and my source to get *that* defined isn’t really available right now – will try to contact her later). So his original advice stands: if frozen, get a lawyer; if not frozen, walk away quietly.

        1. A freeze could be an OFAC (U.S. Office of Foreign Asset Control) or a non U.S.sanctioned list (E.U and Canada). Those require the account be frozen immediately, not closed. That would indicate monies are going to and/or from blocked people, institutions, countries. It requires a lot of research once you get a potential positive hit. If you are sending money to a country on a blocked list but you have approval (say it’s to produce a TV documentary or something) the financial institution wouldn’t know, they just see $ went to a blocked country. So everything is frozen while they determine if it is a false positive block. And clearly they cannot tell the customer what is going on since it is extraordinarily serious stuff.

          Could also be a SAR which was part of another post.

          Okay, getting offline for the day!!!!

    2. was hoping someone would explain AML (part of the bank secrecy act from the 70s which is now roped inside the Patriot act). If there is anything happening that would involve the creation of a SAR (suspicious activity report) they are by law forbidden from telling anyone, especially the customer. SARs are not done lightly. Run. Quickly.

      1. Thank you – that was what my husband was trying to explain to me, but his vocabulary was limited by lack of caffeine. And I was trying to type between dishes I’m cooking, so I abbreviated so I could get up and turn off the beeping timer. 🙂

        1. ah, I rarely do caffeine and never coffee or tea (and now Chris will block my id, *sigh*).

          Funny (?) thing is people heard something about a $10k limit and paperwork (Cash Transaction Reporting or CTR) they had to do so they try to work around that, doing multiple transactions over a short time under that limit. That is a terrible mistake because now there is a lot of paperwork that is now a secret (SAR). It’s been around forever.

          Perhaps they were transferring money to someone on a blocked list. That will also be reason for the hold on his account.

          Either way this sounds very scary. I’ve worked with paypal as a consumer and as a small business person. It’s never fun, rarely painless, but for them to do this is not usual and should be considered a huge red flag for Chris.

          1. Trying to work around reporting limits is a separate crime called structuring. That what screwed NY Governor Spitzer (no pun intended)

          2. Yep, and he used a false name (he gave his buddy’s name/id) and having the money used in a crime (prostitution) across state lines I also believe was also another layer of problem. The cheating is between him and his wife. I don’t care if he’s a crappy husband. Breaking all those laws? Oy.

        2. Jeanne, you too need to put down whatever communication device you are on and go back to Cooking. We’ll still be here tomorrow for you, too. Happy thanksgiving to all and, once again, I learned something new from Chris’ email. Guess I don’t have enough money to worry about such terms!

          1. Laptop on desk in kitchen. 🙂

            Over the river(s) and through the woods, now. Safe travels and Happy Thanksgivukkah to all!

  11. PayPal is convenient for those without credit cards, and in some cases bank accounts (send money orders to PayPal to put in your account so I’m told). In some cases merchants/sellers accept only PayPal for transactions so it’s PayPal or don’t buy. That said, I have an intense dislike of PayPal policy on aggregated spending limits for a given account ($10,000.00) over the life of the account unless the account is “verified” against a bank account, giving PayPal unfettered access to that account and any contents in that account. There is simply too much opportunity for mischief in doing so.

    1. I don’t think that’s correct, but I might be wrong. If a merchant accepts Paypal, he can accept credit cards the same way (except maybe through ebay?). When I got my Paypal account I was pleasantly surprised to see I could accept credit cards as well.

      All of the pseudo banks have various limits. I don’t think Paypal is unique in the regard

      1. Your observation is correct if the merchant/seller accepts/processes credit cards. If that is not the case, PayPal puts a $10,000.00 spending cap on an account unless it is “verified”. That means that PayPal can transfer money directly to your bank account. That sounds like a good idea except it also allows PayPal to remove money from your account without additional authorization on your part. This becomes problematic if a purchaser prevails in a PayPal dispute, rightly or wrongly, and PayPal removes the amount of the transaction from the seller’s account.

        1. Some banks have business accounts which are pass through accounts. Money deposited in them is automatically moved to another account. That prevents a 3rd party from debiting it. I don’t have any personal experience with them though

        2. Any money removed by PayPal can be disputed with the bank and returned, just as any unauthorized ACH transaction. However, it means your money is still gone until the dispute is resolved.

          You can also “verify” your account and then remove the banking information and still stay verified. Any withdrawal from the account would clearly be without authorization.

        3. I may have come up with a way to have my account “verified” without giving them access to an operating account. Need to investigate further but it may be that a credit card that is never activated remains it limbo while serving another purpose entirely.

  12. I have been burned by PayPal too, even though always paying on time. Now, whenever I see an item which involves using PayPal, my back turns. I find another way or get something different. PayPal is not a pal to me.

  13. Chris, since you’ve closed the book on this particular case, I think I would still take up PayPal on the offer to have that “discussion” with the PayPal exec about their stance on customer service. It may be that at that time they would have been able to explain that there are some laws or regulations that require them to take certain actions without explanation, in the context of a broader discussion with you about customer service vice about a particular customer. Of course, that doesn’t mean they don’t hide behind that in some cases where they just don’t want to deal with a customer anymore, and they have the protection of “not only do we not have to tell you why, but we CAN’T tell you” as a remotely possibly explanation for what appears to be horrid customer service. That could have been an interesting question back to the PayPal exec, about how they combat the perception that they can do whatever they want without explanation, and whether or not they even care about that perception.

  14. To those of you who LOVE Paypal. When I made a purchase of 3 Nooks through Paypal via debit card [1st mistake],
    they were the most unhelpful company I have ever delt with. They
    participated on a 3-way call with me and Barnes & Noble [US to China
    to India -whatever-that’s another complaint entirely removed from this
    story]. Barnes & Noble misplaced 2 of those returned Nooks and would not refund my money, some $230. So I was trying to go through PP to get customer help.
    I stupidly assumed [2nd mistake] when PP entered the story that they
    would continue to support me…I had talked to them, they were on it,
    they said, we will contact you in a week and see if it is resolved.
    Absoluely NOTHING happened, including the followup call. Meanwhile,
    unknown to me, the 45 day period for placing a complaint elapsed. That’s
    the part where they give you your money back, then arbirate with the
    offending company. I learned of the time limit and was told they could
    do nothing-even though they had a record of talking to me and attempting
    arbitration already. I hadn’t filled out the right PP forms. THE RESULT
    AND LESSONS LEARNED: Don’t use your debit card for ANY online purchase.
    ONLY a credit card. I use PP ONLY IF I HAVE TO [via Ebay]. They were
    useless in arbitration. Horrible customer service. AND, most importantly
    I learned, it still works to write the president of the
    company-Barnes&Noble. Physically write. NO EMAIL. Rearched the heck
    out of where to send a letter, they hide that information- but not from
    Dunn&Bradstreet. Sent a polite letter, explaining what happened.
    Call to action: Please assist. Got a call ONE WEEK later from the president’s associate. Situation resolved in 4 days-got a check in the mail.
    And a $25 credit to use on their website. Which is the LAST time I will
    ever deal with them. Their customer service was horrible as well. But I sure got smarter during all these negotiations! PS: Elliott-love your site and emails-thanks for standing up for folks. You are amazing! <3

  15. If I’m not mistaken, Paypal is owned by E-bay who have become the beasts of the on-line business world. So the problem is not Paypal, in my opinion, but E-bay and their outrageous rules and regulations and need to control.

    1. I believe you have much to learn about the Nazi party and world history. Your comment, especially after the first day of Hanukkah is wildly uneducated and grossly inappropriate. So in direct response to your first words of your comment, you are mistaken.

      1. You are absoutely correct that my comment was inappropriate and I sincerely express my apologies. I have been having e-bay/pay pal issues and reacted badly.

          1. You might both want to delete this conversation since the original comments are no longer there and this looks very strange to the rest of us. Having said that, PayPal was doing things like this before they were bought by eBay.

  16. I have used PayPal since it first started up. I was one of those early adopters having already cut my online transaction teeth using CyberCoin and later, CyberCash on the early 90s. In my almost 20 years of using PayPal, I have never had a transaction go against my wishes. Unfortunately, there are people who attempt to “game the system” by performing questionable transactions. The includes boosting your credit card points by moving money between the credit card and multiple bank accounts. There was an article in Wired magazine a few months ago. And while not illegal, it is highly questionable. So yeah…I think PayPal is in the right here. Not knowing the rules doesn’t exclude you from them!

    1. While they may be in the right to close the account for violation of the rules, where they are in the wrong is to not disclose to the user what rules were broken.

  17. I once had my account frozen by PayPal and when I sent them the required info it was unfrozen. That was more than 10 years ago and I’ve never had any issues since then.

  18. I was notified my PayPal account was being restricted as being “high risk”. This was after a history of about 50 trouble-free transactions over 5-7 years. All transactions were from eBay or transferring small amounts of money to friends, and not “voodoo” activity.

    PayPal gave me the runaround or stonewalled….Chris’ experience sounded very familiar! A rep finally confided that I didn’t meet the criteria of 50 or more annual transactions (aka, I wasn’t a good enough cash cow for PayPal). When I let them know I was closing my account, their reaction was basically that they didn’t give a s**t.

    In the past year I haven’t missed PayPal a bit…good riddance. Funny thing, about a month after I closed my account PP sent a flashy email saying the account restriction was removed and I could “enjoy the full benefits of a valued PayPal member”…or words to that effect!

  19. My sister had a bad experience with Paypal many years ago, she no longer has an account.

    Then a few years ago I sent a complaint to them about a merchant. They didn’t even appear to read my complaint as they offered me the same thing the merchant did, which was to spend more money to get my money back of a falsely advertised item. I now maintain an account for times when it is something a really want and there are no other options. Otherwise, Paypal can rot in hell.

  20. Propay is a good alternative. You just have to get used to it but its up to the people to make a new and better paypal happen. Paypal is disgusting. Closed my account down for a chargeback from over 12 years ago when I was 17.

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